BCCI's entry into the United States was inevitable, given
Abedi's desire to make BCCI into a global bank, and the size and
importance of the United States financial and banking markets.
Since BCCI was undercapitalized from its inception, its success
required constant growth as a means of filling the ever-increasing hole created by its lack of capital and its
operational losses. Securing a base in the United States was
intended by Abedi from the beginning as a means of obtaining new
opportunities for growth. The United States was one of the
largest money havens for flight capital. It was also unique among
banking systems in insuring deposits at a very substantial level
for FDIC member banks. FDIC insurance made deposits in U.S. banks
more secure than deposits anywhere else in the world. As a
foreign bank, BCCI could not legally accept deposits from U.S.
citizens, or itself become an FDIC member bank. But if BCCI could
find a way to enter the FDIC system, it would be able to offer a
whole new, and highly valued, service to its customers -- U.S.
government guaranteed deposit insurance. Abedi decided that he
would first acquire legitimate banks in the United States for
BCCI, and then determine later how to merge BCCI into them.

BCCI's initial strategy for the United States was to
infiltrate the U.S. banking system through purchasing beachhead
banks in major banking centers, and then to expand the beachhead
operations until BCCI had U.S. banking operations of sufficient
size that they could ultimately merge with BCCI itself. Later,
after state regulators in New York had proven resistent to BCCI,
and BCCI had successfully acquired National Bank of Georgia and
FGB/First American, this strategy was modified. BCCI expanded in
the United States by opening BCCI branch offices in regions with
significant populations from the Third World engaged in trans-national commercial activity, such as Miami, Houston, Los
Angeles, San Francisco, New York, and Chicago. BCCI's intention
was to use these branch offices to feed depositors and banking
activity to NBG and First American, expanding BCCI's activities
through pushing deposits into the federal deposit insurance
system. BCCI then formed an additional beachhead institution in
California in 1985 through a nominee. By then, Abedi had decided
that he would work systematically to integrate the various U.S.
banks BCCI now secretly owned, until the survivor was strong
enough and large enough to in turn purchase BCCI.(1)

BCCI had significant difficulties implementing this strategy
due to regulatory barriers in the United States designed to
insure accountability. These barriers included:

** a strong bias against any bank, such as BCCI, which did
not have a primary regulator with the responsibility for
conducting oversight on a consolidated basis of the foreign bank.

** requirement for certified financial statements from
would-be foreign shareholders seeking to acquire a U.S. target.

** reporting requirements in take-over attempts of federally
chartered banks, subjecting any shareholders seeking to acquire a
bank to the diverse disclosure rules of the Securities and
Exchange Commission (SEC).

** prohibitions on the ability of a bank holding company,
such as Bank of America of California, which still had a 28
percent interest in BCCI, from purchasing banks in other states,
directly or indirectly.

** limitations against interstate banking and branching,
which slowed the ability of BCCI's flag-ship U.S. bank, First
American, to purchase the National Bank of Georgia, and prevented
First American from integrating with any bank in California, such
as the Independence Bank, as desired by BCCI.

However, while these barriers did delay BCCI's purchases of
banks in the United States, and the integration of its U.S.
empire, they failed to stop the purchases. In the end, BCCI was
successful in acquiring four banks, operating in seven states and
the District of Colombia, with no jurisdiction successfully
preventing BCCI from infiltrating it. The techniques used by BCCI
in the United States had been previously perfected by BCCI, and
were used in BCCI's acquisitions of banks in a number of Third
World countries and in Europe. These included purchasing banks
through nominees, and arranging to have its activities shielded
by prestigious lawyers, accountants, and public relations firms
on the one hand, and politically-well connected agents on the
other. These techniques were essential to BCCI's success in the
United States, because without them, BCCI would have been stopped
by regulators from gaining an interest in any U.S. bank. As it
was, regulatory suspicion towards BCCI required the bank to
deceive regulators in collusion with nominees including the heads
of state of several foreign emirates, key political and
intelligence figures from the Middle East, and entities
controlled by the most important bank and banker in the Middle
East.

Equally important to BCCI's successful secret acquisitions
of U.S. banks in the face of regulatory suspicion was its
aggressive use of a series of prominent Americans, beginning with
Bert Lance, and continuing with former Defense Secretary Clark
Clifford, former U.S. Senator Stuart Symington, well-connected
former federal bank regulators, and former and current local,
state and federal legislators. Wittingly or not, these
individuals provided essential assistance to BCCI through lending
their names and their reputations to BCCI at critical moments.
Thus, it was not merely BCCI's deceptions that permitted it to
infiltrate the United States and its banking system. Also
essential were BCCI's use of political influence peddling and the
revolving door in Washington.

Decision to Enter U.S.

By 1976, it had become clear to both BCCI and its U.S.
partner, Bank of America, that their relationship was causing
problems for both parties and might not long survive. Moreover,
BCCI's top officials, especially Abedi, had come to believe that
entry into the U.S. market in a manner that BCCI could control
was critical. Since its creation, BCCI had been a bank whose
deposits and activities were denominated in dollars. Its
settlements with other banks were carried out in dollars. There
were numerous inconveniences associated with BCCI's inability to
conduct business in the U.S. itself, and its forced reliance on
western banks like Bank of America to act as its correspondent
banks for all dealings with the U.S. Moreover, given the hostile
attitude of regulators in the United Kingdom, BCCI had to make
sure it was not fenced out of expansion in the industrialized
countries. If the Bank of England ever acted against it, and BCCI
had no alternative site in a major western financial center, it
might be destroyed.(2) Additionally, the U.S. was home to numerous
"high net worth" individuals from Third World countries, who
could be induced to bank at BCCI. Unlike many countries, the U.S.
had no restrictions on the movement of capital in and out of its
borders, making it an attractive place to park BCCI's real
financial assets. Finally, both Abedi and his key financial
backer, Sheikh Zayed of Abu Dhabi, may have had political motives
to strengthen their position in the U.S.

According to T. Bertram Lance, BCCI's initial partner in its
most important acquisitions in the United States, both Sheikh
Zayed and Abedi felt that BCCI could become a critical element in
strengthening ties between the United States and their
constituencies. As Lance described a meeting between him, Sheikh
Zayed and Abedi in Islamabad, Pakistan in late 1977:

Abedi was concerned about the shifting tides towards
the Soviets in Afghanistan, Iran, India and the Mideast.
Both Abedi and Zayed each expressed their concerns about the
Arab worlds lack of ties to the US. They wanted to do
something about it.(3)

Friends of Lance told journalists at the time gaining access
to President Carter and the White House was one of the explicit
goals of doing business with Lance and one of the reasons the
"Arabs" were interested in having Lance represent them and in
buying his interest in the National Bank of Georgia.

An Atlanta source close to the negotiations says the Arabs
see Lance as giving them access to the administration.
Though a private citizen, Lance is a regular visitor at the
White House and is the chairman of a $500-to-$1000-a-plate
fund-raiser for President Carter scheduled for January in
Atlanta.

"Under normal circumstances," says this source, "NBG would
be the last bank anyone would be interested in. But the
investors see this as an opportunity to do a favor for
someone close to the President."(4)

Initial Attempts to Enter U.S.

BCCI's initial attempt to obtain a bank in the United States
was notably unsuccessful. Initially, BCCI decided it would begin
with a small acquisition, that of the Chelsea Bank, a national
bank with a state-chartered holding company in New York. In order
to keep the transaction low-key, BCCI decided to proceed through
a nominee, a member of the Gokal family, whose shipping empire
could be characterized as much BCCI affiliate as BCCI customer.
Unfortunately, the nominee chosen had few resources of his own,
and was a transparent alter ego for BCCI, prompting the very
regulatory scrutiny in New York that BCCI had sought to avoid. As
recounted by former Comptroller of the Currency John Heimann:

My first supervisory contact with BCCI occurred when I was
New York Banking Superintendent. New York law requires the
Superintended to approve the change of control of a New York
chartered bank. . . A young Pakistani national was the
proposed purchaser. His uncertified financial statement
showed total assets of $4.5 million, of which $3 million was
in the form of a loan from his sister. His reported annual
income for the prior year was, as I recall, approximately
$34,000. Since he was not an experienced banker . . . and
since BCCI was his primary banking relationship, he
indicated that he would be relying upon that institution for
advice and counsel.

Since he was relying upon BCCI to meet his qualifications of
experience, we sought to determine what we could about that
organization.(5)

Heimann determined that BCCI had no central regulator, which
meant that there was no banking authority anywhere with the right
to review and the responsibility to oversee all of BCCI's
activities. BCCI also had divided its operations between two
auditors, and thus had no consolidated financial report, so it
was impossible for Heimann to be certain he could identify and
understand BCCI's actual financial condition. According, Heimann
put a hold on the application. BCCI identified a second bank in
New York, and a second nominee, and made a second application,
with the same result. Finally, Abedi decided to approach Heimann
directly.

On each occasion, the subject of the meeting . . . concerned
itself with BCCI's apparent desire to enter the United
States. In each instance, Mr. Abedi attempted to convince us
of the secure nature and correct operations of BCCI, its
financial strength, etc. On each of these occasions, I
expressed my concern that BCCI did not have a primary
regulator, and that, until it did, my office was reluctant
to permit entry into the US.(6)

Abedi had by now tried the back door into the United States
twice and been rejected, and the front door once, with the same
result. New York, the most important U.S. banking market for
BCCI, would be closed to BCCI so long as Heimann was its chief
regulator.

Soon thereafter, however, Jimmy Carter was elected
President, and Heimann was appointed to become Comptroller of the
Currency, responsible for supervising national banks, and in a
position to opine on nearly any attempted purchase by BCCI in the
United States. At the same time, Carter appointed as his new
director of the Office of Management and Budget, T. Bertram
Lance, head of the National Bank of Georgia (NBG), which Lance
had purchased in 1975 from the Financial General Bankshares (FGB)
group, a bank holding company headquartered in metropolitan
Washington. BCCI alone might not be able to circumvent Heimann.
Abedi knew that in such circumstances, the only way to proceed
was through going over a bureaucrat's head through making use of
one's political ties. In 1975, Abedi had few such ties in the
United States. In 1977, however, Abedi was introduced to Bert
Lance, and BCCI's previous failures in trying to penetrate the
U.S. banking system were replaced with success.

History of Financial General Bankshares

In 1910, a socialist visionary named Arthur J. Morris
decided to find a means of providing credit to small wage earners
and consumers through creating a kind of cooperative banking
system later to be known as the "Morris Plan."

Under the Morris Plan, wage earners depositing their
paychecks in a cooperative fashion into Morris' institutions
became entitled to receive small loans back in return. The
concept was successful, and lead to Morris building consumer
banks that by the 1940's extended to Florida, Georgia, Maryland,
New York Tennessee, Virginia, and the District of Colombia. All
of these lending institutions were under the control of another
entity, incorporated in 1925, called Financial General Bankshares
("FGB"). Eventually, these banks converted to and merged with
conventional banks, and expanded their services to cover
insurance, venture capital, mortgage banking and industrial
operations.(7)

In 1955, FGB came under the control of retired Army General
George Olmstead. By then, the FGB franchise was one of a small
number of banks that had been grandfathered to permit interstate
banking, generally prohibited by the McFadden Act. The Federal
Reserve grandfathering also permitted Financial General's
ownership by another corporate entity of Olmstead's,
International Bank ("IB"), despite the fact that IB also had
several non-banking subsidiaries.(8)

FGB's unique market position attracted criticism from other
banks and by 1966, the Federal Reserve decided that FGB was a
holding company subject to its regulation, and that International
Bank could not retain FGB. General Olmstead was forced by the
Federal Reserve to sell out his interests in FGB on or before
1978.(9)

General Olmstead decided to retire as soon as he could sell
FGB, and began looking for buyers. Bank stocks were not in favor
with investors at the time. Olmstead was initially unable to find
anyone who would buy the entire franchise. But in June 1975, he
was able to sell FGB's Georgia operation, the National Bank of
Georgia, to Georgia banker Bert Lance.

Bert Lance

By September 21, 1977, when Bert Lance tendered his
resignation from the position of director of the Office of
Management and Budget (OMB) to President Jimmy Carter, Lance had
become the most notorious banker in the United States.

Prior to coming to Washington, Lance's entire career had
been in banking in Georgia, starting in 1951 with his work as a
teller at the Calhoun National Bank, a bank owned by the
grandfather of his wife, Labelle. Lance had stayed with the
Calhoun Bank and eventually become its president. He began to
support Jimmy Carter in his political activities in 1966, when
Carter first ran for governor and lost, and again in 1970, when
Carter ran for governor and won. In 1974, at the end of Carter's
term, Lance himself ran for governor and lost, before emerging as
Carter's most important fund-raiser and political advisor in his
successful race for President in 1976.

Lance had become president of National Bank of Georgia in
January 1975, and quickly come into conflict with Financial
General's headquarters in Washington for making loans which both
exceeded his lending limit and were not secured by collateral.
FGB's chairman, William J. Schuiling, was sufficiently disturbed
by Lance's practices that he intended to force a show-down with
Lance. But by June, 1975, Lance instead offered to buy FGB's
controlling interest in National Bank of Georgia for $7.8
million.(10)

When Olmstead needed to sell the rest of FGB in 1976, he
turned first to Lance. At the time, Lance was working to elect
Jimmy Carter president. Anxious to join the Administration,
rather than to remain in banking, he turned Olmstead down.(11)

Lance was formally precluded from engaging in financial
transactions while director of OMB. However, according to later
SEC charges, Lance continued to meet with General Olmstead
regarding the sale of FGB, and put Olmstead in touch with William
G. Middendorf, a former secretary of the Navy who ultimately
decided to take over FGB. Lance met with both Olmstead and
Middendorf at the Washington Metropolitan Club about the proposed
sale while director of OMB.(12). As of April 1977, Middendorf and a
group of twenty investors purchased Olmstead's interests in FGB,
and Middendorf was installed as the chairman of the bank. But the
takeover group, including former ambassador to Iran Joseph
Farland, Arkansas banker Jackson Stephens, and Occidental
Petroleum chairman Armand Hammer, swiftly began to disintegrate.
By November, 1977 the shareholders had split, with Stephens
heading a group opposed to Middendorf -- even as the Federal
Reserve ordered Olmstead and his group to end their dual
relationship to both International Bank and FGB by January 31,
1978.(13)

It was precisely at this point that FGB, Bert Lance, and
BCCI came together to bring about BCCI's secret purchase of a $2
billion bank in the nation's capitol.

Lance's problems had begun on July 11, 1977, when President
Carter asked the Congress to suspend ethics rules that would have
forced Lance to sell 190,000 shares of stock he owned in National
Bank of Georgia. He based his request on the ground that Lance
would lose $1.6 million if he was forced to sell, because the
bank's stock was depressed. Weeks of bad publicity followed, as
well as an investigation by the Office of the Comptroller of
Lance's Georgia banks which found "unsafe and unsound" banking
practices at NBG and the other banks, but no criminal behavior by
Lance.

Following Congressional hearings in which he was represented
by Clark Clifford and Robert Altman on September 8-14, 1977,
Lance resigned from OMB and found himself in terribly difficult
circumstances. Not only was he exiled from President Carter's
Administration, but his greatest asset -- his network and
experiences as a banker in Georgia -- had been turned into an
apparent liability. Also, Lance was still deeply in debt as a
result of his borrowing $3.4 million to purchase NBG just two
years earlier, and had no ready buyer for his interest in the
National Bank of Georgia, his principal asset, given the fall in
the price of its stock. Moreover, as Lance's practices at NBG had
received a vast amount of negative national publicity, the value
of the franchise itself was potentially permanently impaired.

The marriage between Lance and BCCI in 1977 was one not
merely of convenience, but necessity. At the time, BCCI had
already attempted to enter the United States market and failed;
and Lance was facing indictment, deeply in debt, and had
literally no other place to turn. Moreover, Abedi and Lance
shared some characteristics in common. Both Abedi and Lance were
entrepreneurial financiers who liked to operate at the border of
legal restrictions, in disregard of customary and usual banking
practices. Both had reached high positions in their home
countries through providing financial and other backing to
political figures in their home countries -- Abedi to a
succession of Pakistani prime ministers, Lance to Jimmy Carter.
And both had come to a point in their respective careers where
their entrepreneurial spirit had been stymied by their respective
establishments. They both needed to create new opportunities to
escape their difficulties. Without Abedi, Lance was only a few
steps away from bankruptcy. Without Lance, Abedi lacked any clear
means of entering the United States. Together, they were able to
make Lance wealthy, and to gain for BCCI secret entry to several
of the most important financial and banking markets in the United
States.

During the process, both BCCI and Lance -- each notorious
within banking circles -- drew the persistent scrutiny of bank
regulators, federal investigators, and journalists alike. Both
experienced the most bitterly contested bank take-over in U.S.
history in connection with the Financial General Bankshares'
takeover litigation. In the face of this unusual regulatory
scrutiny and public attention, BCCI was still ultimately able not
merely to enter the U.S. market, but to acquire the most
important bank in metropolitan Washington. This advantageous
market entry would ultimately result in BCCI owning a network of
U.S. banks extending coast to coast through seven states and the
District of Colombia.

BCCI's Targeting of National Bank of Georgia

And Financial General Bankshares

As in most areas concerning BCCI, there is more than one,
mutually inconsistent, account of how BCCI and Bert Lance came
together, and of how BCCI came to target Financial General
Bankshares (FGB) for takeover.

The first account, as testified to by Lance himself,
suggests that a former Georgia state Senator named Eugene Holly
had developed a relationship with Abedi and BCCI and wanted Lance
to meet Abedi to see if they could help one another. By this
account, Lance went to New York in October 1977, met Senator
Holly there, was joined by Abedi and his number two at BCCI,
Swaleh Naqvi. Lance was told that BCCI had developed a unique
approach of economic development for the Third World which it
wanted to expand in the United States. As Lance testified:

Basically, Mr. Abedi said to me: I am building a bank
headquartered in London that has a deep and abiding interest
in the problems of health, hunger, economic development. . .
I shared that concern, especially about economic
development, because I had come from a poor section of
Georgia.(14)

After discussing economic development issues, Lance and
Abedi got down to basics: BCCI was looking to expand into the
United States, and wanted Lance's help. As Lance testified, Abedi
understood that Lance might need to know more about BCCI -- the
last thing either Abedi or Lance would wish to do was further
embarrass the President of the United States. Accordingly, Abedi
would leave Lance with BCCI's annual reports, and Lance could get
back to him as to whether Lance could help. According to Lance,
he then turned to Clark Clifford, who had represented him in
Congressional hearings into Lance's activities in Georgia, and
asked Clifford to do due diligence on BCCI. When Clifford called
Lance back to tell Lance that Abedi was "a man of integrity and
character," Lance agreed to meet with Abedi and Naqvi in London,
and there became BCCI's agent for its forays into the U.S.(15)
Thus, by Lance's account, Clifford first had contact with BCCI on
behalf of Lance in October, 1977.

According to Lance, while in London on October 15, 1977, he
learned that Abedi had already targeted the Bank of Commerce in
New York for possible purchase by BCCI. Lance told Abedi that FGB
was a much better prospective purchase for BCCI, because it
"enjoyed a very unique position in American banking at that point
in time in the sense that it was one of the two or three, maybe
four, multistate holding companies that were in existence in the
United States."(16)

Lance testified that while he had read other accounts of how
BCCI became interested in FGB, it was his belief that he brought
FGB to Abedi's attention, not anyone else.(17)

Lance also testified that in London, he also piqued Abedi's
interest in purchasing National Bank of Georgia from Lance -- on
behalf of Abedi's investor clients, not BCCI, and that Abedi soon
advised him that Ghaith Pharaon might be interested. As a result,
Abedi arranged to have the Pharaon purchase of National Bank of
Georgia proceed on one track, while Abedi arranged for the other
Middle Eastern "investors" to work on the FGB takeover on a
second track.(18)

Jackson Stephens: BCCI's Principal U.S. Broker?

A second, and inconsistent, account of BCCI's initial entry
into the U.S. was provided to the Washington Post in 1978 by
participants in the FGB takeover battle, and later reiterated in
filings with the Federal Reserve by Lance and BCCI attorney
Robert Altman. By this account, the initial contact between BCCI
and FGB came from Arkansas multi-millionaire and FGB shareholder
Jackson Stephens.

At the time, Stephens was both a close friend of Lance's,
and a longtime activist in Democratic political circles. Stephens
had been instrumental in fundraising efforts for President Jimmy
Carter, who had been his classmate at the U.S. Naval Academy in
Annapolis. Moreover, Stephens retained a financial interest in
National Bank of Georgia after Lance purchased it from FGB.(19)

According to the Post account, by the time of Lance's
resignation, Stephens had already begun to broker the sale of
National Bank of Georgia to "a client of BCCI" -- BCCI front-man
Ghaith Pharaon -- as a means of assisting Lance. Stephens then
went to BCCI and Abedi to see if BCCI might be interested in
acquiring the metropolitan Washington FGB franchise directly. As
the Post wrote:

A BCCI executive said the Arabs weren't interested in FGB,
but the subject came up again on Nov. 26 when Stephens and
Lance met Abedi in Atlanta for more talks about National
Bank of Georgia. Abedi began to sound interested, and
Stephens reportedly offered to sell a block of 4.9 percent
of FGB and recommended Abedi meet [Eugene Metzger, a
dissident shareholder with a significant number of FGB
shares] to pursue the matter.(20)

Altman's account to the Federal Reserve removed Lance from
the picture even further, contending that Jackson Stephens, not
Lance, handled all the negotiations regarding National Bank of
Georgia, and first proposed to BCCI the possibility of buying
FGB.

As set forth in a May 9, 1978 letter from Altman to the
Federal Reserve, Jackson Stephens told a BCCI representative
during negotiations over the sale of National Bank of Georgia to
Pharaon in November, 1977 that FGB might be available and could
be a good investment for other BCCI customers. In late November,
Stephens told Abedi that Abedi should meet with FGB investor
Eugene Metzger, and designate Metzger and Stephens as agents for
these Middle Eastern investors. Neither BCCI nor any of its
affiliates provided financing for the purchase of the stocks,
although BCCI advanced the funds through the accounts the Middle
East investors maintained at BCCI. Some funds were borrowed by
one "investor," Fulaij, from the Kuwait International Finance
Company ("KIFCO"), which BCCI purportedly had a 49 percent
interest in, but actually owned and controlled through its
nominee, Faisal al-Fulaij.

Adham's Account of Origin of FGB Takeover

A fourth account of the genesis of the BCCI's interest in
FGB, completely inconsistent with the Lance, Post, and Altman
accounts, came from BCCI shareholder and front-man Kamal Adham,
who advised the Federal Reserve on April 10, 1991 by letter that
an Middle Eastern friend of his, Hasan Yassin, told him that FGB
would be a good investment, and Adham as a result brought the
prospective investment to BCCI for review as his business agent.
Adham did not explain to the Federal Reserve how Yassin had known
of FGB's availability, or why Yassin believed Adham might be
interested, nor had Lance ever heard of Yassin. Two weeks later,
Adham reiterated these statements in formal testimony before the
Federal Reserve.(21)

Oddly, given Altman's representation to the Federal Reserve
that the Middle Eastern investors became involved as a result of
a meeting between Stephens and Abedi, Clifford himself told the
Federal Reserve in 1981 that Adham's involvement came "from a
friend who was associated with the Saudi Arabian embassy" with
"contacts" to Mr. Middendorf. Clifford's reiterated this
statement to the Senate on October 24, 1991, testifying that "the
man in the Saudi Arabian Embassy looked into [FGB] in more detail
and concluded that it might be an attractive acquisition.
Apparently, that was one of his functions in the Saudi Arabian
Embassy, to pass information of that kind back to Saudi
Arabia."(22)

Later, Adham, Clifford, and Altman would seek to resolve the
contractions in these accounts in testimony before the Federal
Reserve, discussed below.

The Federal Reserve's Findings

On July 29, 1991, the Federal Reserve issued findings
concerning the genesis of the 1977-78 takeover suggesting that in
fact, Lance, Stephens and BCCI, working together, had initiated
the discussions regarding the BCCI group's purchase of FGB in a
meeting on November 7, 1977. According to the Federal Reserve:

At the suggestion of T. Bertram Lance ("Lance"), Abdus Sami
("Sami"), a senior BCCI officer from its inception and a
close associate of Abedi, met with Jackson Stephens
("Stephens") to discuss the purchase by a BCCI client of the
interest of Lance and others in NBG. . . During the meeting,
Stephens, who was dissatisfied with his investment in
Financial General, told Sami that Financial General might be
a good investment for BCCI clients.(23)

The Federal Reserve findings are indeed the only account
that is consistent with the contemporaneous documentary records
concerning what took place. These Federal Reserve findings show
Lance's testimony to have incorrectly omitted Stephens' key role;
Altman's account to have incorrectly omitted the key roles of
Lance and of BCCI; and Adham's account, bolstered by Clifford at
the Federal Reserve hearing, to be at best, immaterial to the FGB
purchase, and at worst, an outright fabrication.

Ghaith Pharaon and the NBG Takeover

In both the National Bank of Georgia and Financial General
Bankshares takeovers, although BCCI was the real party at
interest, it disguised that interest for a number of reasons,
including the fact that at the time, Bank of America's 24 percent
ownership of BCCI would have made BCCI's purchase of a U.S. bank
outside California illegal under any circumstance.

Both purchases began moving on a fast track in November and
December, 1977. Although Lance and the others involved took pains
to suggest that the two purchases were unrelated, as Lance
acknowledged, Lance, Abedi, Clark Clifford, and Robert Altman
were central to both of them, and the two transactions took place
simultaneously.(24)

For example, while Clifford and Altman have testified that
they did not become involved with Lance and the FGB transaction
until February, an article in the Washington Post on December,
18, 1977, quotes Altman, as Lance's representative, confirming
negotiations among "Middle Eastern financial interests" and Lance
concerning Lance's establishment of "a holding company to direct
their capital into banks and other U.S. investments."(25)

The article describes Abedi's role as the "matchmaker" for
the proposed transactions, and specified that "Lance's attorney,
Altman" had announced earlier in December that Lance was
negotiating to sell shares of NBG stock for $20 each -- precisely
the price paid in early 1978 to Lance by BCCI nominee Ghaith
Pharaon.(26)

Of the two transactions, the National Bank of Georgia
transaction was far simpler, and consummated with far greater
ease. The principal reason for the difference was that the
National Bank of Georgia was not a bank holding company, and as a
result, was regulated only by the Office of the Comptroller of
the Currency, which was more worried about the wretched condition
of the bank and its possible failure than about the possibility
that its purchaser, Saudi "billionaire" Ghaith Pharaon, might be
a front-man for BCCI.

BCCI's relationship with Pharaon went back to the foundation
of Pharaon's fortune. Pharaon inherited funds and opportunities,
from his father Rashid, who had been a physician for the founder
of Saudi Arabia, Abdul Aziz. His father became close to the King,
and was posted abroad as a Saudi Arabian Ambassador to all Europe
from 1948 to 1954, during which the younger Pharaon was educated
in Paris. Later, Pharaon studied in Lebanon, Syria, and
Switzerland. He completed his education in the U.S. at the
Colorado School of Mines and Stanford University, where he
studied petroleum engineering, and completing it with a Harvard
MBA, after which he began referring to himself as "Dr.
Pharaon."(27)

While in his twenties in the mid-1960's, Pharaon became
friendly with then-Saudi intelligence chief Kamal Adham, who
introduced him to Abedi and BCCI. Pharaon and Adham went into
business together, building a Hyatt Hotel in Jeddah, Saudi
Arabia, financed by BCCI, which in turn generated enough money
for Pharaon to found a construction firm, REDEC, whose success
formed the basis for Pharaon's reputation as a billionaire.
Ultimately, numerous banks financed Pharaon's activities as well
as BCCI, and by 1977, Pharaon had already taken short-term
passive interests in banks in Texas and Michigan.

Chronology of the Sale of NBG to Pharaon

The National Bank of Georgia sale to Pharaon and BCCI began,
according to testimony by Bert Lance, through discussions and
negotiations between Lance, Abedi and other BCCI officials in
Atlanta over Thanksgiving weekend in 1977.(28) It was precisely the
same time that Lance, Abedi and BCCI reached agreement on
beginning the takeover of Financial General Bankshares as well.(29)

Abedi handled all the negotiations with Lance concerning the
purchase of National Bank of Georgia. Although Pharaon was the
apparent buyer, Lance never even met him until January 1978,
after the negotiations had been completed, the day before the
sale of National Bank of Georgia from the Lance group to Pharaon
was announced. Ultimately, Lance received $2.4 million for his
interest in the bank, twice the previous market value of the
shares.(30) In addition, Lance received another $3.5 million from
BCCI's Grand Caymans affiliate, ICIC, for acting as BCCI's
business agent. Lance used these funds to repay debts to the
National Bank of Chicago, and to purchase shares of FGB.(31) The
funds provided Lance were originally described as "loans," but
BCCI never asked Lance to sign a note or to arrange terms for
repayment, and in time, the payment came to be understood as a
consulting fee, or retainer.(32)

Unlike the bitterly contested FGB takeover, the sale of
National Bank of Georgia from Lance and its other investors
proceeded quickly, and reasonably smoothly. The $20 per share
tender offer, with a total cost of $21 million for Pharaon at
twice the recent market value of the shares, assured little
opposition from the shareholders. Moreover, Pharaon's purchase of
his stake of NBG shares from Lance was completed by the beginning
of January, 1978 -- before the regulators knew of the BCCI
group's attempt to take over FGB, and before a federal grand jury
in Atlanta began a criminal probe of Lance's banking affairs.

Nevertheless, federal regulators were uneasy about the
Pharaon transaction from the beginning because of the involvement
of BCCI officials in it. A memorandum to the files from then-Comptroller of the Currency John Heimann on January 4, 1978
articulated the nature of the concerns:

Tomorrow, January 5th, the sale of Lance's stock to Pharaon
will be completed at 2 pm. . . Guyton [President of NBG
since Lance's departure for OMB] noted he was somewhat
disturbed about the role played by the Pakistanis in this
transaction. Not that he knew anything negative about them
but their role at present or in the future, seemed to be ill
defined and caused him some concern. He believes that Lance
is presently on the BCCI payroll working with Addabi [sic]
and Sami. As a matter of fact, Lance went to London last
week and will be back today. The purpose of that trip,
presumably, was to discuss further expansion of BCCI in the
U.S.(33)

In the conclusion of the memo, Heimann noted that Pharaon
and BCCI apparently had plans for acquiring additional U.S.
banks. This fact gave Heimann additional cause for concern given
his opposition to BCCI's entry into the U.S. in New York two
years previously.

Pharaon had told [Guyton, the NBG president] that Pharaon
was negotiating for another bank in the United States and
would have an announcement to make within 30 days. Guyton
also understands that BCCI is looking for another bank in
the United States.(34)

There is no evidence that Pharaon was looking at any other
U.S. bank at this time, apart from BCCI's still secret interest
in FGB. Thus, while Pharaon was ultimately not involved in the
1978 FGB takeover, in retrospect, this reference suggests that
Pharaon may have been considering participating with BCCI in its
FGB takeover as a nominee for the bank.

Within two weeks, OCC received additional disturbing
information. A small aviation company was requesting an unsecured
loan for $890,000 from NBG to purchase a Grumman airplane, backed
up by a irrevocable letter of credit issued by BCCI, all at
Lance's request. The president of the company was Lance's
personal pilot, and the loan was being made to purchase a plane
to facilitate Lance's business activities for BCCI. The loan was
not one that NBG, or any well-run bank would ordinarily make,
because the credit was unsecured. However, NBG officers felt they
were under pressure from Lance to approve the loan, who was now
on BCCI's payroll, receiving "a tremendous salary," an airplane,
office space, and secretarial assistance from BCCI. NBG president
Guyton told the OCC that BCCI intended to invest for its own
account as well as for other investors in the U.S., and Lance was
to be its business agent.(35)

OCC officials told Guyton it would be "foolish" to make the
loan, and NBG accordingly agreed not to make it. The incident
represented precisely the kind of self-dealing that Heimann had
already seen in reviewing Lance's finances at part of the inquiry
that arose while Lance was director of OMB. When the FGB takeover
attempt became public month later, Heimann directed OCC officials
in enforcement to determine whether Pharaon, like Gokal before
him, was a front for BCCI.

On March 30, 1978, Robert B. Serino, director of Enforcement
and Compliance of OCC, met with Pharaon, to find out just what
role BCCI and Lance were going to play in Pharaon's NBG. Pharaon
assured the OCC that Lance would not be involved further in his
bank, and that BCCI would act merely as an advisor, but Serino,
in a memorandum to Heimann, was uncertain as to whether to
believe him.

Pharaon . . . indicated that there never was an
understanding or desire on his part to have Lance
participate in the management of NBG and this was not to be
a term of his purchase. This is contrary to the
representations given to us and the SEC by Lance's counsel
during the original meetings . . . at that time, they
indicated that one of Pharaon's conditions of the purchase
would be that Lance would be acting as chief executive
officer.

Pharaon indicated that Abedi, in fact, was the one who
suggested to him that this would be a good investment and
essentially put the deal together for him. He indicated that
BCCI was, in fact, one of his financial advisors and that he
had hoped to use employees of BCCI (paid by him personally)
to review the transactions at NBG periodically to advise him
as a controlling shareholder of the condition of the bank in
the future. . .

My conclusions from meeting with Pharaon are that he tells a
convincing story; however, it appears that he is "beholden"
to or at least influenced by Abedi. I believe he could, in
fact, be Abedi's alter ego in the United States.(36)

There is no evidence in OCC files to suggest that OCC sought
to investigate further its suspicions about Pharaon acting as a
front man for BCCI in the purchase of National Bank of Georgia.
Instead, the OCC, accompanied by the SEC, filed a joint civil
suit against Lance, National Bank of Georgia, and Lance's other
bank, the Calhoun bank, charging them with "fraud and deceit" in
violating banking and securities laws, and including among the
charges allegations that Lance used the banks to personal enrich
himself by providing himself with excessive and unsecured loans.
All three signed consent decrees, neither admitting nor denying
the allegations -- but agreeing not to engage in unsafe and
unsound banking practices in the future.

Given OCC's concerns about Lance, there was an obvious
tension between trying to protect the National Bank of Georgia
from Lance's practices by letting a sale to Pharaon go forward,
and with trying to protect the National Bank of Georgia by
stopping the sale because of concerns about BCCI. The likely
consequence of the latter course of action, however, would be
that no one would buy NBG at all and it would be left in Lance's
hands. The OCC knew in private what was not known by the public,
although it was whispered in banking circles -- that NBG was in
financial trouble, and had inadequate capital. Pharaon's tender
offer for the shares of the bank would expire on June 20, 1978.
If the OCC took any action to delay or prevent that acquisition,
NBG might never recover.(37) The OCC gave Pharaon permission to
move forward and he concluded his tender offer to purchase a 60
percent interest in NBG on May 30, 1978. OCC thus took the
conservative approach of accepting Pharaon's dubious account
about his relationship to BCCI, and permitting Pharaon to
"rescue" the bank, rather than challenging Pharaon's purchase
and placing the bank at immediate risk.

The truth was that Pharaon and BCCI had purchased NBG in a
partnership, with BCCI lending Pharaon some of the funds to buy
the bank, and agreeing to share the expenses, profits, and losses
with Pharaon 50-50. This arrangement was convenient for both
Pharaon and BCCI because it permitted them to rearrange the
ownership of NBG as needed depending on their respective
financial situations.(38) It went undetected until 1991, when the
Federal Reserve for the first time investigated the NBG takeover
of 1978 and concluded that Pharaon had borrowed at least part of
the funds he used for the acquisition, with BCCI as his partner
in the transaction from the beginning.(39)

OCC's decision about NBG was unfortunate. As later bank
examination documents demonstrate, NBG remained what OCC termed a
"problem" bank for years following its sale to Pharaon, with a
substantial number of Lance-related substandard and non-performing loans remaining in its portfolio. A decade later,
after its purchase by First American at the behest of BCCI, NBG -- renamed First American Georgia -- remained in "unsatisfactory"
condition according to OCC examiners, with serious problems of
asset quality, earnings, loan losses, and monitoring system.
Moreover, in buying National Bank of Georgia through its nominee,
Pharaon, BCCI had succeeded in overcoming the regulators to
acquire its first bank in the United States. This lesson would
have been especially powerful to Abedi. During this very time, he
was in the very midst of high publicized actions in Washington
involving many of the same players and where allegations were
again being raised about BCCI's possible use of front-men. It was
a lesson that with persistence, BCCI would also be able to
succeed in deceiving the regulators in its attempt to take over
FGB.

Clifford and Altman and FGB Takeover

By all accounts, Clifford and Altman's introduction to BCCI
and FGB came as a consequence of their representation of Lance
before Congress beginning on Labor Day weekend in 1977. But the
parties involved provide differing accounts of how and when Lance
brought Clifford and Altman into his bank deals in the ensuing
months.

According to Lance, he first discussed the possibility of
Clifford becoming counsel for Abedi and BCCI as early as October,
1977, because Lance "thought that Mr. Clifford ought to be Mr.
Abedi's counsel in regard to what he was doing." Lance said that
Clifford was already familiar with BCCI at this time, because
Clifford had on Lance's behalf "done the due diligence that he
reported back to me on from the standpoint of BCCI and Mr. Abedi"
before Lance became involved with them in October.(40)

By contrast, Clifford testified that his and Altman's
involvement with BCCI began in December 1977 when Lance, as a
"former client," brought Abedi in to talk with Clifford for "a
social visit." Although the FGB takeover attempt had in fact
already begun in November, according to Clifford, there was no
discussion at the meeting involving Lance, Clifford, and Abedi,
of any prospective takeover. Rather, according to Clifford, Abedi
confined himself to telling Clifford of his philosophy of banking
-- to provide the Third World with banking services which they
had never had before, as a means of bringing progress to
developing lands.(41)

According to Clifford, in the weeks that followed, he would
"hear from time to time [from] little reports [that] would sift
in that Mr. Abedi and BCCI were in the process of acquiring stock
in a company called Financial General Bank Shares . . . I had not
heard of them before."(42) According to Clifford, only after BCCI
and the Middle Eastern investors had made their acquisitions of
FGB stock, and only after the SEC had been alerted by the
Middendorf group of the action by the BCCI group, did Abedi and
the others involved retain Clifford and his firm, Clifford &
Warnke to assist them in the litigation regarding the attempted
takeover. Clifford testified that his representation of the bank
and its investors began in February, 1978.(43)

As Clifford affirmed in his written testimony to the Senate:

Without our involvement or advice, four of these investors
had purchased stock in an American bank holding company
called Financial General Bankshares ("FGB"), the predecessor
to First American, without filing certain disclosures with
the Securities and Exchange Commission ("SEC"). The SEC
investigated these transactions, and the management of FGB,
concerned that these purchased foreshadowed a possible
corporate takeover effort, filed suit against the Arab
investors, BCCI, Mr. Abedi and others. We were retained to
represent Bert Lance, Agha Hasan Abedi, BCCI, Sheikh
Mohammed bin Zaied al Nahyan, Sheikh Sultan bin Zaied al
Nahyan, Faisal al Fulaij, and Abdullah Darwaish, certain of
these defendants.(44)

Thus, by Clifford's account, the entire structure of the FGB
transaction and the assembling of the shareholders had been
conceived and implemented by BCCI and the "investors" before
Clifford had ever become involved. The representation began in
connection with SEC action that took place in mid-February, 1978.
This account would buttress Clifford and Altman's contentions
that they were "grossly deceived" from the first by BCCI.(45)

However, the chronology described by Clifford is
inconsistent with both the details and the sense of Lance's
testimony, and with a contemporaneous telex sent to Abedi and
BCCI by BCCI official Abdus Sami, who was working closely with
Lance in late 1977 and early 1978 on the FGB takeover.

The Sami Memo:

Documentary Evidence of BCCI's Actual Intentions

The Sami memo to BCCI chairman Agha Hasan Abedi, written
January 30, 1978, provides the best documentary summary of the
actual structuring of the FGB takeover by Lance and BCCI. It
reveals the clear involvement of Clark Clifford in the month of
January, 1978, a time when Clifford contends he was uninvolved in
BCCI's attempt to take over FGB, and prior to what Clifford
described as the triggering event for his involvement, the
commencement of litigation involving the SEC in mid-February,
1978.

The Sami memo, written in Washington and sent to Abedi in
Karachi, Pakistan, first describes the "situation of acquisition
of FGB," noting the purchase to date by the BCCI group of 17.5
percent of the FGB stock, with commitments or control over 23 to
24 percent of the stock, and that a meeting needed to take place
between "our friend," Bert Lance, and the Middendorf group, to
determine whether the BCCI takeover would proceed by with the
consent of the Middendorf group, or through a contest. In the
telex, Sami advised Abedi that they needed to prepare for
litigation in which the Middendorf group would argue that it was
undesirable for FGB to be taken over by foreigners. He added that
BCCI needed to retain Clark Clifford as counsel in the event of a
contest for control. Sami then described further steps BCCI
needed to take in preparation for such a struggle:

To keep individual ownership to below 5 percent we have to
distribute the ownership to 4 persons of substance. We have
already given the names of Sheikh Kamal Adham and Mr. Fulaig
[sic]. We want two other names immediately. Under Securities
and Exchange Regulations we are also obligated to report to
Commission as well as Financial General details of
purchases. We require their biodata and powers of attorney
for them. We must have this early this week to avoid
possible liability on Mr. Metzger and purchases. We have to
be careful that our name does not appear as financier to
most of them for this acquisition. The necessity of filing
this return has arisen on account of concentration of over 5
percent in the hands of Metzger, his knowledge and our
intention to acquire control.(46)

The Sami memo described an intentional strategy by BCCI,
Lance, Adham, Fulaij, and other members of the BCCI group to
disguise BCCI's underlying interest in the transaction, and the
fact that the individuals were acting as a group, in order to
circumvent SEC disclosure rules. Under American securities law,
anyone who buys five percent of a publicly traded company must
file a disclosure form with the Securities and Exchange
Commission. In the memo, Sami also advised Abedi that he has "met
Clark Clifford and explained to him our strategy and our goal. He
was happy to know the details and has blessed the acquisition,"
suggesting that Clifford was a knowing participant in BCCI's
takeover scheme on or before January 30, 1978, and had already
been retained as lawyer for the group prior to that date.(47)

Sami's dating of Clifford's involvement is buttressed by the
legal bill sent by Clifford to BCCI for this period. The bill,
dated May 24, 1978, describes the legal services rendered them by
Clifford as dating not from mid-February, but from January 1978.

Significantly, the federal district court judge who heard
the case brought by the Middendorf group against BCCI and the
Lance group made a specific finding regarding BCCI's apparent use
of nominees in connection with the initial takeover, as suggested
by the Sami memorandum. On April 27, 1978, the court found that
in early December 1977, BCCI's agents sought to purchase a
percentage of Financial General shares substantially in excess of
any amount for which Abedi then had purchasers.(48) Thus, rather
than responding to investment requests from clients, BCCI was in
effect acting not only as agent but as principal in the takeover.

Within a matter of days following the writing of the Sami
memorandum, BCCI added the crown prince of the Abu Dhabi royal
family, Sheik Sultan bin Zayed al Nahyan, and Abdulah Darwaish,
financial adviser to the Abu Dhabi royal family, as the two
additional shareholders for the purpose of the takeover referred
to by Sami. Significantly, during this period, Abedi also
solicited Iranian millionaire Mohammed Rahim Motaghi Irvani, a
business partner of former CIA director Richard Helms, to be a
nominee shareholder. Irvani, was listed in the original SEC
filing in the early, 1978 takeover attempt, as a 5 percent
shareholder of CCAH, and BCCI's lead front-man in the original
takeover. Several documents, introduced in civil litigation
involving Irvani in Georgia, describe Irvani's recruitment by
Abedi in early 1978 to act as a front-man for BCCI.(49)

The FGB Litigation, Consent Decree and Takeover

On February 7, 1978, a meeting of FGB shareholders was
convened at which Lance announced that the BCCI group controlled
20 percent of the FGB stock and wanted eventual control --
despite having never previously disclosed its takeover
intentions, as required by federal securities laws, to the SEC.

The Middendorf group, recognizing that Lance's statements
amounted to a confession of violating SEC disclosure laws,
immediately complained to the SEC and the Federal Reserve, which
launched investigations.

Lance had made a significant mistake in advising the
Middendorf group of the coordinated takeover effort by the BCCI
group. Within days, both Lance and BCCI began publicly announcing
that FGB investors had purchased the stock individually, not as a
group. He also announced that BCCI was uninvolved in the
purchases and honoring the legal prohibitions against its
involvement that existed due to its partial ownership by Bank of
America.(50) The revised version of events by Lance and BCCI had
come too late: the Middendorf group, which still controlled FGB,
filed suit on February 17, 1978 alleging violations of securities
laws.

A month later, the SEC filed its own suit to block the
Lance-BCCI FGB takeover attempt. Eleven defendants were named in
the action, including Lance, Abedi, BCCI, and four BCCI clients.
However, an agreement had already been struck between the SEC and
the Lance-BCCI group, which suited both the SEC and the would-be
investors.

Given Lance's admissions, and the careless assemblage of the
Middle Eastern shareholders by BCCI, the SEC case against the
Lance-BCCI group was formidable, and hard to contest. For
example, each "individual" Middle Eastern investor sought to
acquire, at precisely the same time, an identical interest in the
bank of 4.9 percent, which placed each one, supposedly acting
independently, at just under the level that would otherwise have
required them to disclose their purchase to the SEC. It was all
too obvious that they were acting jointly, as a group. But the
SEC was not looking for punitive action, merely corrective
action. So long as Lance-BCCI group agreed to live by SEC rules
in the future, and compensate the injured parties by paying more
for the shares of the bank, the SEC would let them go forward.
The Lance-BCCI group agreed to pay the highest price to date for
stock in FGB to any shareholders who wanted to sell -- and
promised to keep BCCI out of any continued takeover efforts of
FGB, other than as an investment "advisor."

The SEC's surprisingly mild position, given the baldness of
the group action, was a further demonstration of Abedi's
principal of not being overly concerned about laws. Here, BCCI
had broken SEC laws and while hampered by SEC action, would be
permitted to move forward with its arrangements to take over FGB
so long as it paid the current FGB shareholders enough for the
privilege.

On April 27, a federal judge permanently enjoined Lance and
ten other defendants form violating securities laws, and the SEC
consent decree was issued. In its injunction, the federal
district court made specific findings that there was evidence
BCCI was at the center of the takeover, and might well have
controlled the takeover. The court said that the BCCI clients
relied "heavily, if not exclusively" on Abedi and BCCI in
deciding to purchase the FGB shares and, tellingly, that BCCI's
agents had to sought to purchase a percentage of FGB shares
substantially in excess of any amount for which Abedi then had
purchasers. These findings should have been warning lights to
regulators. In fact, because of these warnings, the Federal
Reserve later sought and received assurances from BCCI, the
Middle Eastern investors, and the attorneys, that BCCI was not
behind the purchase.

In the meantime, BCCI executives began making false
statements to the press in an apparent attempt to rewrite history
and discourage further litigation. For example, two top BCCI
officials, Allaudin Shaikh and Dildar H. Rizvi, told the
Washington Post in mid-March, 1978 that Lance was merely "an
informal adviser who pointed out investment opportunities in the
U.S." for BCCI," suggesting that he was "not employed by the bank
. . . was paid nothing by the bank. . . and had received
absolutely no loans from BCCI or loans arranged by BCCI." The
executives also told the Post that the Middle Eastern investors
advised by BCCI were "four individuals from different countries,
absolutely unknown to each other."(51)

On March 28, 1978, a memorandum to the Federal Reserve Board
of Governors discussed the Fed's investigation into the Lance-BCCI activities, stating that the SEC had found "no evidence"
that the Middle Eastern investors had actually acted in concert,
despite Abedi's and BCCI's serving as their joint financial
advisor. However, within days, the U.S. District Court judge
hearing the SEC complaint found that BCCI, Abedi and the four
investors had indeed acted as a group.

By April, the Federal Reserve was asking detailed questions
of Clark Clifford and Robert Altman as attorneys for Lance and
the "individuals" in the BCCI group, inquiring whether ICIC,
BCCI's Grand Caymans affiliate, was acting as a vehicle for the
acquisition of FGB. On May 9, 1978, Altman told the Federal
Reserve that Abedi and BCCI were acting as the commercial banker
and financial advisor for the Middle Eastern investors, and that
while BCCI had been used to move funds for the investors into the
U.S., it had not financed any of the FGB purchases.(52)

Thus, by mid-1978, BCCI had developed a theory of its
involvement with the Middle Eastern investors in FGB designed to
reconcile its central role in the original takeover with the
various securities and banking laws which prohibited it having an
actual direct interest in taking over FGB. The theory was that
BCCI was a financial advisor to the actual parties at interest,
and never a principal itself in their purchases of FGB stock.
From May 9, 1978 onward, Clark Clifford and Robert Altman, as
attorneys for Lance, BCCI, and the BCCI-related shareholders,
would articulate the position that BCCI at no time acted
inconsistently with this role.

Although the takeover was now able to move forward, Lance's
poor judgment would soon result in his being severed from both
National Bank of Georgia and FGB. In February, his statements had
set off the SEC action and FGB civil litigation. Moreover, his
own legal problems pertaining to his sloppy banking practices in
Georgia were mounting. Over the remainder of 1978, Lance was
eased out by Clifford, and replaced at the apex of the BCCI group
by retired Senator Stuart Symington. Symington would later become
chairman of the Board of Directors of the acquisition vehicle
BCCI created for the takeover, and would remain so until his
death.

In the months that followed, the Middendorf group and the
BCCI group continued to litigate the takeover. Dozens of
depositions were taken, and all the parties to the takeover were
placed on the record. During those depositions, the BCCI
investors repeatedly stated under oath that they were purchasing
FGB shares for their own interest; that BCCI did not control,
vote, or have the power to dispose of their shares; that BCCI
would not finance the purchase of their shares; and that BCCI's
role was limited to that of commercial banker and investment
advisor for the Middle Eastern investors.(53)

In 1991, Clifford testified that "nothing in the course of
this litigation . . . indicated in any way that they [the Middle
Eastern investors] were nominees for BCCI, as is now alleged."(54)
However, throughout the litigation and takeover, there were in
fact recurrent allegations that BCCI was behind the takeover, and
regulators, including the Federal Reserve, the Office of the
Comptroller of the Currency, and various state banking
authorities, continued to insist on receiving affirmations from
everyone involved that BCCI was not a principal.

The ambiguous nature of BCCI's role was demonstrated again
during the summer of 1978, when BCCI, ostensibly on behalf of the
Middle Eastern investors, formed Credit and Commerce American
Holdings ("CCAH"), N.V., as a Netherlands Antilles holding
company, which in turn held a subsidiary, Credit and Commerce
American Investment, B.V., of the Netherlands, as vehicles for
acquiring shares of FGB. In statements filed with the SEC, BCCI,
Abedi, and the four Middle Eastern investors stated that BCCI
would have no interest in CCAH. They advised the SEC that ICIC
Overseas would own up to 5 percent of CCAH's shares. At the time,
ICIC Overseas was ostensibly a staff benefit fund for BCCI, but
in fact was then and remained a slush fund for and alter ego of
BCCI itself.

The 1978 CCAH Application

By October, no agreement had yet been reached between the
Middendorf group and the BCCI group. However, the BCCI group in
the form of CCAH pressed forward with making a formal application
to the Federal Reserve for the acquisition of all the voting
shares of FGB. Under the terms of the application, CCAH, CCAI,
and FGB would become bank holding companies and acquire all of
the shares of Financial General Bankshares. The four Middle
Eastern "investors" would contribute all of their shares of the
bank to CCAI, in return for shares of CCAH. CCAI would then make
a tender offer for the remaining shares of Financial General
Bankshares. As stated to the Federal Reserve by Robert Altman in
his capacity as counsel to CCAH, "neither BCCI nor any other
organization related to BCCI contemplates owning any equity
interests in CCAH."(55)

At the time, Clifford and Altman were dealing simultaneously
with BCCI on the acquisition and with BCCI's various front-men
and nominees.

For example, in this precise period, Clifford and Altman
received a power of attorney from one acknowledged BCCI front-man
or nominee, Iranian businessman Mohammed Irvani, for Irvani's
proposed involvement as a participant as a shareholder of CCAH,
in a transaction handled on Irvani's behalf by former CIA
director Richard Helms. Helms drafted an agreement indemnifying
Irvani from any loss in connection with Irvani giving Clifford's
law firm a power of attorney to act in Irvani's name in
purchasing CCAH shares.(56) The fact that Irvani was acting as a
front-man for BCCI at the time was confirmed recently by his son,
Bahman Irvani, who told the Atlanta Constitution that his father
"lent his name to the 1978 takeover bid at the request of BCCI
founder Agha Hasan Abedi."(57)

Through the remainder of 1978 and early 1979, the critical
issue focused on by regulators was whether BCCI actually had a
hidden interest in CCAH. For example, on November 7, 1978,
Federal Reserve Lloyd Bostian of the Richmond Fed wrote Altman to
ask for more information on the relationship between CCAH, CCAI,
and BCCI. Two weeks later, Altman replied that although ICIC
would have an ownership interest of 4.5 percent in CCAH, and one
or two persons associated with BCCI or ICIC might serve as
directors of FGB, neither BCCI nor ICIC would have contracts with
the bank or their holding companies relating to management or
investments. Soon thereafter, the Comptroller of the Currency
raised concerns about who would be providing financing for the
proposed FGB purchase. On January 12, 1979, Altman wrote the
Federal Reserve to specify that no more than $20 million would be
borrowed by the shareholders for the acquisition, and that all
such borrowing would be made by institutions having no
affiliation with either CCAH or CCAI.

In the meantime, the Middendorf group had continued to
object to the takeover, and on January 26, 1979, the Attorney
General of Maryland issued an opinion stating that Maryland law
precluded a hostile takeover of a bank. On February 16, 1979, the
Federal Reserve dismissed the 1978 CCAH application on the ground
that it violated Maryland law, and in response, CCAH and CCAI
sued to overturn the Maryland decision.

The 1980 CCAH Application

Those involved in the original takeover believed that the
Federal Reserve's objections would end if they were able to
resolve the continuing fight with the Middendorf group and end
the take-over battle. They therefore sought to sweeten the
financial reward to the non-CCAH shareholders of FGB, and find
ways to shield the CCAH purchase from the shadow of BCCI.
Tentative agreement was reached with the non-CCAH shareholders
for the sale of the bank in March 1980, while Senator Symington
was pressed into a leading role as chairman of CCAH and a would-be director of Financial General Bankshares. Thus BCCI had
arranged to replace its shady reputation with the very
distinguished and respectable reputation of retired United States
Senator and former Democratic Presidential nominee. In May, the
non-BCCI faction sent a letter of understanding to Symington
setting out the guiding principles of the FGB acquisition, which
included the requirement that Symington himself hold and vote 60
percent of the stock of CCAH for the first five years, with
Clifford succeeding Symington in the event of his death or
inability to complete his term. The provision was suggested by
Clifford as a means of assuring regulators that BCCI would not
secretly control the bank.(58)

Even at this point, lawyers for the Middle Eastern investors
knew that the actual shareholders they were representing were
potentially a fluid group. As former Federal Reserve lawyer
Baldwin Tuttle explained in a May 27, 1980 memorandum to Robert
Altman and two other BCCI attorneys, entitled "The Application
(At Long Last!)":

It will be necessary to determine who the new investors will
be (we should try to keep as closely as possible to the
original cast of characters to help with our moratorium
problem.) (emphasis added)(59)

The memorandum from Tuttle implies that even in 1980, the
attorneys for the acquiring group believed that the identities of
the "investors" were not in control of the proposed takeover, but
names to be manipulated at will to deal with legal, regulatory,
and financial issues as they arose.

On November 25, 1980 -- three years after the original
takeover of the bank began with Bert Lance -- CCAH and CCAI filed
a second application with the Federal Reserve to become bank
holding companies. The application made a number of key
representations, required by the regulators, regarding the nature
and source of the financing of the venture, in part to
demonstrate that BCCI had no direct or indirect interest in the
transaction. These representations included:

** None of those purchasing the CCAH stock would retain any
personal indebtedness in connection with the transaction.

** All of the funds used in the transaction would be
provided from the personal funds of the investors.

** None of the funds would be from financial institutions
affiliated with BCCI.

The application, filed on CCAH's behalf by Clifford and
Altman, also made an iron-clad statement that BCCI had no
interest, direct or indirect, in the bank:

BCCI owns no shares of [Financial General], CCAH, or CCAI,
either directly or indirectly, nor will it if the
application is approved. Neither is it a lender, nor will it
be, with respect to the acquisition by any of the investors
of either [Financial General], CCAI or CCAH shares."

In a written response to questions concerning the
relationship between BCCI and CCAH, Altman further stated that
the shareholders of CCAH had all made personal investments, and
none of them were acting "as an unidentified agent for another
individual or organization."

As part of the application process, the investors provided
the Federal Reserve with financial information, typically
consisting of extremely general statements about the net worth of
the applicants. For example, the certificate provided for Kamal
Adham consisted of a declaration by a Middle East accountant
based in Saudi Arabia on June 19, 1978, addressed "To whom it may
concern," that states:

Without any responsibility, we here certify that the
estimation of the net worth properties [sic] and investments
of H.E. Kamal Adham, as at June 15th 1978, is U.S. dollars
134.000.000 ($134 million).

According to the accountants, this conclusion was based on
an estimated value of his investments in land and buildings at
$100 million, buildings outside Saudi Arabia at $8 million, and
"investments" not otherwise specified at $26 million.

The Federal Reserve made additional efforts to secure more
precise information on the finances of the would-be purchasers,
and were eventually told that the financial resources of many of
the shareholders could not be calculated, because they were
rulers of nations who owned all of the land of the countries they
ruled, and their financial resources were essentially the net
national wealth of their countries.

In a letter from BCCI lawyer Baldwin Tuttle to the Federal
Reserve, dated November 5, 1990, Tuttle advised the Federal
Reserve:

By tradition and historical background of the Trucial Sates,
the ruler of an Emirate owns all of the land of his State
. . . Similarly, all the natural resources of the State are
also regarded as the personal property of the ruler and his
heirs who enjoy complete authority to utilize them as they
consider fit.(60)

Tuttle told the Federal Reserve that it was "impossible to
estimate or segregate" the assets of the Al Nayhan family from
those of the Sheikh himself or of the emirate of Abu Dhabi
because they are "not regarded as separate entities." According
to Tuttle, the legal situation of all property in these emirates
was identical -- the proposed investors in FGB owned everything
of value in the emirates they ruled.(61)

Assured of the solvency of these apparent investors in FGB,
by early 1981 the Federal Reserve was moving to lift the
remaining barriers to the purchase, if it could be certain that
BCCI was not secretly behind the transaction. This issue was of
deep concern not only to the Federal Reserve, but to the Office
of the Comptroller of the Currency, which knew the most about
BCCI. OCC had learned of BCCI's use of nominees in connection
with its review of Bank of America's interest in BCCI; it had
concerns about Ghaith Pharaon being BCCI's alter ego in his
purchase of National Bank of Georgia. Given its knowledge, the
FGB transaction made OCC officials uneasy. But the Federal
Reserve was the primary regulator, and the OCC was not willing to
stop the FGB transaction from moving forward, so long as they
received assurances from everyone involved that BCCI was not a
party to the transaction.

On March 12, 1981, the OCC finally signed off on the CCAH
takeover based on the understanding that BCCI would have no
involvement with the management of the bank or the holding
companies or with the financing of the acquisition.

As Charles Muckenfuss III, the senior deputy comptroller of
the currency, explained in the letter to the Federal Reserve:

We note that in the October, 1978 application a relationship
between the investors group and the Bank of Credit and
Commerce International (BCCI) was outlined. Members of the
proposed investors group or Credit and Commerce American
holdings, N.V. and Credit and Commerce American Investment,
B.V., also hold an interest in BCCI. It has now been
represented to us that BCCI will have no involvement with
the management and other affairs of Financial General nor
will BCCI be involved in the financing arrangements, if any
are required, regarding this proposal. This commitment is
critical, both now and in the future, since such a
relationship with another financial institution would be a
significant factor in appraising this application. This is
especially important in light of the overlapping ownership
which will exist between Credit and Commerce American
Holdings N.V., Credit and Commerce American Investment,
B.V., and BCCI. Moreover, any enhanced direct or indirect
affiliation or relationship would take on even greater
significance in light of the fact that BCCI is not subject
to regulation and supervision on a consolidated basis by a
single bank supervisory authority.(62)

Thus, by early 1981, the technical securities and banking
regulatory issues had been solved by the CCAH group. The only
remaining obstacle to approval of the CCAH group takeover was
continued suspicion by regulators that BCCI -- investment advisor
to most of the shareholders and owned by a number of the
shareholders -- might still somehow be a direct or indirect
shareholder. The regulators therefore repeatedly asked Clifford,
Altman, and the CCAH shareholders for assurances on this point,
and repeatedly received them. The Federal Reserve and the OCC
were now ready to accept these assurances. State regulators,
especially Sidney A. Bailey, the chief bank regulator for
Virginia, responsible for overseeing FGB banks in Virginia, were
not.

Virginia's Objection to the CCAH Takeover

Bailey had served at OCC for twenty years as a bank examiner
before becoming the number one bank regulator for Virginia in
1978. Bailey had previously been visited at the state banking
offices in Richmond by Clifford and Altman, and had felt that
Clifford's representations to him were theatrical and rehearsed.
Clifford had argued that America was strengthened by foreigners
recycling petrodollars to the U.S., while Bailey believed in
local control, so that regulators would have access to the people
in charge if there were trouble.(63)

As far as Bailey was concerned, there was no way of knowing
who this Middle Eastern group really represented, what they
intended to do with the bank after they took it over, or why they
had selected this bank in the first place. Bailey believed that
banks were like churches, not just basic local institutions in
which citizens placed their money, but the repositories for that
which is good and sound in a community, the embodiments of a
community's past, present and future. The representations that
were being made to him by Clifford and Altman were designed to
provide comfort to him concerning the intentions of the Middle
Eastern investors, but to Bailey, they were inherently
unverifiable. For that reason, Bailey had told the Federal
Reserve that as far as the State of Virginia was concerned, "the
proposed acquisition will be inimical to the convenience and
needs of the community."(64)

As Bailey later testified:

Representations were made that the operation of the
subsidiary banks of Financial General Bankshares . . . would
be improved, that their quality and quantity of service to
the communities they served would be raised . . . However,
how that was to be done was not made clear and it seemed,
with control to pass outside the country, it seemed, well, a
little hard to believe that the real intent of this group of
individuals was to improve the quality of banking service in
the Shenandoah Valley or Virginia or in McLean and
Washington, D.C. or anywhere else. There wasn't any real
incentive for them to do that . . . Take me at my word.
Believe me. Have I ever lied to you? That sort of thing. . .
I had the word of the people speaking to me that none of
these negative detrimental things would occur, and nothing
more.(65)

Bailey was also concerned about the corporate walls created
by the holding company structure of CCAH, CCAI, and FGB. With
neither CCAH nor CCAI being located in the U.S., Bailey felt the
offshore holding company structure provided an invitation to
abuse. He was sufficiently concerned about the problem that he
had contacted both the State Department and CIA in an effort to
learn more about the shareholders, but had received no
information from either about any of those involved in the
transaction.(66) In all of these objections, Bailey was joined by
state regulators from Tennessee, who, in concert with the local
bankers at FGB's Tennessee branches, opposed the takeover as
against the interests of the community.

The April 23, 1981 Federal Reserve Hearing

In response to Bailey's concerns, and in an effort to put
the allegations concerning BCCI's involvement to rest, the
Federal Reserve scheduled an unusual hearing on the CCAH
application for April 23, 1981, convened by associate counsel
Robert Mannion. Prior to the hearing the Federal Reserve advised
Baldwin Tuttle, as lawyer for the CCAH group, that the first
issue the Federal Reserve wanted answered was how the various
shareholders became involved in investing in U.S. banks and
decided to acquire FGB. In the letter, the Federal Reserve also
asked the applicants to "clarify the historical, current and
expected future relationships between the Bank of Credit and
Commerce International, S.A., London, England, and its affiliated
companies, on the one hand, and Applicants and their principals,
on the other."

The hearing opening with Bailey reiterating his opposition
to the takeover, and reiterating the concerns he had previously
expressed to the Federal Reserve by letter. First, the U.S. might
not be able to insure that these foreign owners would abide by
its laws. Second, it would be difficult to tell who really
controlled the bank. Third, it was possible the bank's new Middle
Eastern owners might strip the bank of its assets and move them
elsewhere before anyone found out. Bailey listed another half
dozen related reasons, mostly related to the difficulties of
verifying financial information of foreign shareholders. Finally,
Bailey suggested that the key issue the Federal Reserve should
consider was why the Middle Eastern investors were willing to pay
so much for the bank.

What is the motive giving rise to these protracted,
expensive campaign to buy Financial General? Allegedly,
Financial General is viewed by these applicants simply as an
investment, but it is obvious that the price which the
applicants are prepared to offer for control of Financial
General bears little logical relationship to either the
actual book value of those shares or their price in the
market prior to the initial stimulation of the market by the
applications or their agents. There can be little doubt that
some incentives other than orthodox investment motives must
have prompted this effort. . . One obvious plausible answer
to this riddle lies in the unique position of Financial
General in the market. No other single financial institution
is situated in both the financial and government hubs of the
United States.(67)

Bailey warned the other regulators that he believed the
purchasers had some secret agenda. Bailey did not know for sure
what it was, and neither did any of the other regulators. Until
they could determine what it was, the Federal Reserve should turn
the application down.

In response to this impassioned presentation by Bailey,
Clark Clifford opened the presentation of the case on behalf of
the Middle Eastern investors. He began by expressing his regret
at Bailey's concerns, and promised to answer them, noting that if
the Fed permitted the acquisition, Clifford looked forward "to
many years of an agreeable relationship between us, Mr. Bailey."

Clifford described the genesis of the FGB takeover as
arising from Adham -- not BCCI and Abedi, not Jackson Stephens or
Lance -- and that as a result of Adham becoming interested in the
bank, Adham had interested his associates and friends, and
brought BCCI into the picture to analyze FGB as an investment.(68)

Clifford said that the Middle Eastern group put together by
Adham was interested in bringing substantial new capital to the
bank as passive investors, and that in addition to Senator
Symington and Clifford, other prominent Americans such as retired
General Elwood Quesada and General James Gavin would serve on
FGB's boards, demonstrating the honorable intentions of the
bank's shareholders and their commitment to quality.

He also suggested that it was critical for the national
interests of the Untied States itself that the Federal Reserve
permit the application to go forward.

It is in the interest of our country that an effort is made
to bring back to the United States as many of the dollars as
we can that through the years we send over to the OPEC
countries.(69)

Clifford explained that some $90 billion in payments had
left the U.S. for crude oil to the Persian Gulf countries the
previous year. If those funds were taken and invested in West
Germany, Great Britain, Switzerland, they would bring no benefit
to the United States, whereas if the application was approved, it
would be the U.S. that would benefit.

Clifford then introduced the investors, beginning with
Sheikh Kamal Adham, whom Clifford described not as the brother-in-law to the late King, nor as the former head of Saudi
intelligence, but merely as a prominent Saudi businessman.
Clifford said that he had the "deepest respect for his [Adham's]
character, for his reputation, for his honor and for his
integrity." Clifford suggested that Bailey's concerns were
founded on some naive form of anti-foreign bias. He warned that
such anti-Arab bigotry was unfair and implied that such a factor
could not justify a refusal to grant the CCAH application:

I believe deeply in this country. I believe deeply in its
attitude of fairness. I believe deeply in its attitude that
it is a country of laws and not of men. I do not believe in
prejudice. I do not believe in bias. Our government does
not, and with all of these factors, it seems to me that
these men bring into this operation those qualities that our
country can well receive.(70)

Adham then addressed the Federal Reserve, reiterating the
account that his interest in FGB began not with Abedi and BCCI,
but with Hassan Yassin of the Saudi Arabian embassy, that BCCI
was brought in by Adham to evaluate the bank, and that Adham then
learned that BCCI was already independently and coincidentally
involved in evaluating the bank for other Middle Eastern
investors.

Adham told the Federal Reserve that BCCI was a banker for
him and some of the other investors, but that there were no
understandings or agreements involving him or any of the
investors and BCCI concerning FGB. Parroting language used by
Clifford and Altman in formal statements to the Federal Reserve,
Adham testified that "whatever relationships are developed
between Financial General and BCCI in the future, if any, are
matters to be decided by the new management of Financial General
based upon that institution's best interests."(71)

At this point in the hearing, Mannion, the Federal Reserve
lawyer conducting the hearing, focused on the contradiction
between Adham's explanation of how he became interested in FGB,
and the apparent earlier involvement of BCCI and Abedi with the
Lance group.

MR. MANNION: As I read the statements . . . Sheikh
Adham and Mr. Fulaij were originally interested in this
investment by the Bank of Credit and Commerce, BCCI.

MR. ALTMAN: That is not correct. . . I believe that
Sheikh Adham's testimony was that he was advised of this by
a friend who worked in the Saudi Arabian Embassy, Mr Yassin
. . . Mr. Fulaij has said that he was seeking to make
investments abroad, particularly in the United States, and
asked for his representatives to locate some of them and
advise him of their availability. They had contacted BCCI in
that effort, and BCCI brought to their attention the fact
that there was stock available in Financial General.(72)

Thus, according to Adham, Fulaij and Altman, it was sheer
coincidence that BCCI was the investment advisor for everyone
involved. This testimony, provided to the regulators for the
purpose of attempting to reconcile the otherwise inconsistent
accounts provided by Lance, Altman and others of how BCCI came to
be involved in the takeover, strained the credulity of regulators
even in 1981. Mannion again asked Altman whether Adham was the
leader of the investor group, the person who had brought together
all of the other investors. Adham responded by explaining, again,
that there were two independent groups of Middle Eastern
investors -- one Saudi, the other Kuwaiti -- who had become
interested in FGB as a matter of utter coincidence. Oddly, at
this point, Adham had chosen to ignore the third group involved,
the Abu Dhabi investors, entirely. Given the fact that Abu Dhabi
was even then the largest shareholder in BCCI apart from BCCI
itself, the omission may not have been inadvertent.

SHEIKH ADHAM: I invited some of my friends from my part of
the world and I guess some friends from Kuwait invited some
friends from Kuwait and some of their friends. But I am
called the lead because perhaps I now own more shares than
the others.(73)

After a lunch break, Mannion returned to the issue that was
troubling him.

MR. MANNION: We are still a little bit uncertain as to how
the group came about. In Sheikh Adham's written and oral
presentation this morning, he indicated how he became
interested in Financial General, and then went to BCCI and
had them do an analysis of the organization. Then we
understand that Mr. Fulaij, on his own, was looking for
investments in the United States, and he was advised by BCCI
to get involved in or suggested that he might want to get
involved in Financial General. Was Sheikh Adham aware that
Mr. Fulaij was getting involved in Financial General or when
Mr. Fulaij made his investment, was he aware that Sheikh
Adham was involved in it?(74)

This question had apparently not been anticipated by Adham,
Fulaij, or their lawyers, and hence Adham and Fulaij replied as
follows:

Mannion, troubled by the unbelievable nature of the
coincidence, persisted.

MR. MANNION: So you were told that Financial General was a
good investment by BCCI, and on that basis, is it just a
coincidence that BCCI is first asked by Sheikh Adham to do an
investigation or analysis of Financial General, and . . . they
then gave advice to several of their investment clients to be
involved in Financial General?

MR. FULAIJ: (Nods in the affirmative.)

SHEIKH ADHAM: That is very possible. Such things happen in
our parts of the world.(76)

Adham then advised the Federal Reserve -- falsely -- that he
had not met Fulaij for ten years, had no immediate contacts with
him and that their mutual involvement was mere coincidence. In
fact, both had been involved with other transactions involving
BCCI, including acting as nominees for BCCI in connection with
recent stock transactions involving BCCI's oil company, Attock
Oil.

Concerned by the nature of Mannion's questions, Adham sought
to put his concerns to rest directly.

SHEIKH ADHAM: I think that from the line of questions,
it appears there is doubt that somebody or BCCI is behind
all of this deal. I would like to assure you that each one
on his own rights will not accept in any way to be a cover
for somebody else.(77)

In an effort to enlighten the Federal Reserve, Clifford and
Altman then compared BCCI's role as an investment advisor to
Merrill Lynch in the United States -- independently looking at
investment opportunities for its clients. Another lawyer for the
BCCI group, Baldwin Tuttle, a former Federal Reserve attorney who
previously had been Mannion's superior at the Fed, then took his
turn to explain his understanding of what had happened:

MR. TUTTLE: Both [Adham] and Mr. Fulaij have stated
that originally they were buying shares as an investment
like anyone else buys a small minority interest as an
investment. It is only after Financial General commenced the
litigation that they considered the possibility of
increasing their shareholding.(78)

Mannion then returned to the issue of BCCI directly, noting
the similarity of the names "Bank of Credit and Commerce" on the
one hand, and "Credit and Commerce Holdings" on the other. Why
were the names so similar? Clifford responded:

The terms "Credit" and the term "Commerce" are terms that
are used extensively in the Persian Gulf in financial
affairs. His Excellency [referring to Adham] has said that
he deals with banks that used the terms "credit," and used
the terms "commerce." Of course a number of banks used the
term "Commerce." . . . I know of no additional reasoning
behind it.(79)

Clifford then reiterated the key representation pertaining
to the application before the Federal Reserve. In response to a
question from Mannion as to precisely the function of BCCI in the
application, Clifford testified:

None. There is no function of any kind on the part of
BCCI. I think when the question was asked, having to do with
what might occur in the future, I think somehow may have
given the answer, "well, that would depend upon the judgment
of Financial General in the future." I know of no present
relationship. I know of no planned future relationship that
exists, and other than, I don't know what else there is to
say.(80)

Based on the representations made by Clifford, Altman,
Tuttle, Adham, Fulaij, and the other Middle Eastern investors,
the Federal Reserve, despite its obvious suspicions, approved the
application on August 25, 1981. The Federal Reserve also granted
a request, made by Altman on behalf of the Middle Eastern
investors and CCAH on June 2, 1981, to seal portions of the
transcript of the hearing, preventing anyone outside the Federal
Reserve from learning the identities of several of the
shareholders.(81) A year later, perhaps as a way of breaking with
the past and moving beyond the ugly publicity pertaining to the
litigation over the takeover, and the bank's new Middle Eastern
ownership, FGB formally changed its name of its banks to First
American, and its holding company to First American Corporation.

In approving the application, the Federal Reserve explicitly
accepted "the entire record" of statements made to it by the
Middle Eastern investors, BCCI, and their attorneys. These
included certain statements made in the April 23, 1981 hearing
and in the applications which constituted loop-holes regarding
BCCI's ability to be involved with FGB in the future, and which
were contrary to the understandings which the OCC had said were
critical for its approval of BCCI's application. These statements
suggested that if BCCI loaned funds to the shareholders after the
original acquisition in connection with CCAH, such loans would
not be precluded. Together with the Federal Reserve's acceptance
of the concept that BCCI could act as a liaison between FGB and
the shareholders in its capacity as "investment advisor," the
ability of BCCI to "lend" to its shareholders following the
initial acquisition created a mechanism by which BCCI could at
any time "call" its interest in CCAH shares, in collusion with
its nominees, by "lending" funds, secured by those shares, on
which the nominees defaulted, leaving BCCI in possession of the
shares. In the decade to come, this device was used by BCCI
repeatedly to deceive the regulators, in some cases with the
apparent knowledge of some of BCCI's attorneys and agents in the
U.S.

The True Account of the 1978 Takeover

While there had been numerous warning signs in front of the
Federal Reserve prior to its approval of the CCAH application to
take over CCAH, and again, recurrently, through the 1980's, the
Federal Reserve did not conclude that it had been lied to about
BCCI's role until December, 1990, when attorneys for Sheikh Zayed
and BCCI at the firm of Patton, Boggs & Blow, prompted by
investigative activity by the District Attorney of New York and
other factors, advised the Federal Reserve of the apparent
control of First American by BCCI. Seven months later, after BCCI
had been closed globally, the Board of Governors of the Federal
Reserve voted to issue an order banning the four Middle Eastern
investors from banking activities in the United States forever,
on the basis of the false statements they made to the Federal
Reserve in the course of the 1978 and 1980 applications to take
over FGB, and in the course of the April 23, 1981 hearing. In
that order, the Federal Reserve also made findings as to the true
state of affairs pertaining to the FGB takeover a decade earlier.

On July 29, 1991, the Federal Reserve found:

** BCCI owned CCAH in violation of the Bank Holding Company
Act.

** BCCI concealed its intended ownership and control of CCAH
at the time of CCAH's 1980 application to acquire First American.

** At least four of the Middle Eastern investors involved in
the 1980 application were nominees for BCCI, including all of the
Middle Easterners who had appeared in person before the Federal
Reserve during its April 23, 1978 hearing, Adham, Fulaij, Khalil,
and Jawhary. In addition, other BCCI nominees included the head
of one emirate within the United Arab Emirates -- Sheikh Naomi,
ruler of the Emirate of Ajman and a corporation wholly owned by
the head of a second emirate, Sheikh Hamad bin Mohammed al-Sharqi, ruler of the Emirate of Fujeriah. Other nominees included
Sheikh Shorafa, a government official of the United Arab
Emirates.

** The head of BCCI, Agha Hasan Abedi, and his chief
assistance, Swaleh Naqvi, had coordinated the nominee scheme for
BCCI.

The Federal Reserve found that beginning in late 1977, BCCI
began using these nominees to purchase stock in Financial General
through an arrangement under BCCI loaned the money to the
nominees to purchase the CCAH shares, subject to side agreements
under which the nominees were not liable for serving or repaying
the loans. Under the terms of the scheme, the nominees signed
deeds to transfer their stock in blank, leaving it to BCCI to
fill in the name of the transferee at BCCI's convenience. BCCI
was also authorized by the nominees to sell the shares at
whatever price it chose and to keep any profits it might earn,
and BCCI promised to indemnify the nominees against any losses
they might sustain for acting as nominees. BCCI was also given
the power to vote the shares held by its nominees, had powers of
attorney to sell the shares, and agreed to make fixed payments in
fees to the nominees in compensation for their agreement to act
as nominees.(82) The Federal Reserve found that BCCI also financed
the start-up costs of CCAH and a $50 million loan to First
American supposedly from an outside bank, BAII, which had
interlocking directors with BCCI.(83)

In short, BCCI, Kamal Adham, Faisal al Fulaij, A.R.K.
Khalil, and the other Middle Eastern nominees had secretly done
precisely what the Federal Reserve had sought to assure they
would not do, and had done precisely what they had promised not
to do, in writing and in testimony to the Federal Reserve prior
to its approval of the 1980 CCAH application. From late 1977
through December 1990, BCCI and its nominees lied to the Federal
Reserve, repeatedly filling out false reports to the Federal
Reserve, and providing the Federal Reserve false statements and
information.

1. See e.g. Price Waterhouse Note of Audit Committee Meeting
on 4 April 1989, BCCI, "SN [Swaleh Naqvi] said that it was
unlikely there could be a merger between BCCI and CCAH in the
immediate future, although it is possible that there could be a
reverse merger in the future. In the view of BCCI's problems in
the USA, he did not consider it advisable that this possibility
was discussed [publicly] for a couple of years."

27. Resume, Ghaith Pharaon, in BCCI Senate documents; see
Atlanta Business Chronicle, April 27, 1987. While "Dr." Pharaon's
doctorate was self-conferred, his decision to adopt the honorific
had lasting impact. Even after Pharaon had been indicted by the
Justice Department and New York District Attorney and cited for
numerous violations of banking law, federal banking regulators
continued to refer to him in prepared and oral testimony before
the Subcommittee as "Dr. Pharaon." See, e.g. prepared testimony
of John Stone, head of enforcement, FDIC, May 14, 1992, which
refers to Pharaon as "Dr Pharaon" some 33 times, S. Hrg. 102-350
Pt. 5 pp. 158-163.

29. In its suit in the FGB case, the SEC found the FGB
takeover battle formally began just a few days later, on November
29, 1977, when Lance, Stephens, Metzger and BCCI, through Abedi,
set in motion a plan for taking over FGB. Lance began buying up
the bank's stock, telling none of the sellers that the secret
purchaser was BCCI.

66. Staff interview with Bailey, April, 1991; at the time, the
CIA knew precisely who Adham was, having had extensive contact
with him in his role as the liaison between Saudi and U.S.
intelligence, but did not advise Bailey of this relationship. A
detailed treatment of Adham and of the CIA are contained in
separate chapters of this report.

81. The Federal Reserve only unsealed this material in 1990,
after providing it in a heavily redacted form to journalist Larry
Gurwin following repeated requests from Gurwin in the preparation
of his ground-breaking story on the BCCI-First American
connection for Regardies' magazine.

82. Summary of Charges, US Board of Governors of the Federal
Reserve, No. 91-043, July 29, 1992, pp. 1-11.